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Global Credit Research - 25 Oct 2010
New York, October 25, 2010 -- Moody's Investors Service assigned an A2 rating to the proposed
$250 million senior unsecured notes offering of Sigma-Aldrich
Corporation (SIAL, A2 senior unsecured, Prime-1 commercial
paper). Proceeds from the debt issued will be used to repay amounts
outstanding under the company's commercial paper program and for
general corporate purposes. Moody's also assigned (P)A2 senior
unsecured and (P)A3 subordinated ratings to SIAL's proposed multi-seniority
shelf registration. SIAL's other outstanding debt ratings
were affirmed. The ratings outlook is stable.
Proposed $250 million senior unsecured notes -- A2
Proposed senior unsecured shelf registration -- (P)A2
Proposed subordinated shelf registration -- (P)A3
Senior unsecured ratings -- A2
Commercial Paper ratings -- P-1
The stable outlook for the company's ratings reflects our belief that
SIAL will continue to demonstrate strong credit metrics and generate stable
earnings and cash flows. Moody's expects SIAL will grow organically
and also through acquisitions in its core businesses without assuming
significant amount of additional debt. Along with growth initiatives
SIAL will be able to fulfill cash needs for dividend payment and stock
repurchases from internal cash flow generation while maintaining financial
ratios well within SIAL's current target levels. SIAL has historically
targeted a leverage ratio of 30-35% and the unadjusted leverage
(as defined by debt/capital) stood at 20.2% as of September
30, 2010. The company's Prime-1 (P-1) commercial
paper rating continues to be supported by excellent liquidity, a
stable financial profile and $650 million in undrawn committed
multi-year credit facilities.
SIAL's A2 and Prime-1 ratings reflect SIAL's historically
strong, stable performance, and steady growth combined with
substantial ongoing free cash flow. SIAL generates unusually stable
and highly profitable earnings for a specialty chemical company.
SIAL is positioned strongly within the A2 rating category, however
the ratings upside for the company is currently limited due to the relatively
small size of its revenue base relative to other higher rated industrial
issuers. The ratings allow for debt financed acquisitions similar
in size to that of JRH Biosciences, completed in February of 2005
for a purchase price of $378 million, and for further bolt
on acquisitions. We expect that going forward management will maintain
the company's historical financial philosophy and pursue bolt on acquisitions
in areas of its core competencies while managing share repurchases with
available free cash flow over the next several years.
The ratings anticipate that the company will maintain a prudent credit
profile even after share repurchases and/or major debt financed acquisitions.
Given the company's strong relative financial strength within the A2 rating,
SIAL maintains significant flexibility to pursue any potential future
strategic acquisitions. We assume however that all future acquisitions,
if any, will be financed in a way that is consistent with the company's
philosophy of continued strength in its financial performance.
Furthermore the ratings are supported by our anticipation that management
will continue to pursue its historically conservative financial philosophy
while keeping leverage in the target range of 30-35%.
We assume that management will not let future share repurchases cause
shareholders equity to fall below $800 million. The credit
facility contains a financial covenant that requires the maintenance of
consolidated net worth of at least $750 million. We note
that as of September 30, 2010, stockholders equity was $1.9
billion despite ongoing share buy backs since 2003 of over $2.2
billion. We anticipate that the company will generate interest
coverage above 15x and free cash flow of greater than 30% of total
In 2010, SIAL continued to improve its performance in both sales
and margins. Operating margins through the first three quarters
of 2010 approached 26% as compared to 23% for the same period
in 2010, while sales revenues grew to approximately $1.7
billion for the first three quarters versus approximately $1.5
billion for the same period in 2009. The company maintains a strong
business profile, supplying over 170,000 products to researchers,
quality control personnel, and project managers worldwide.
SIAL operates in 40 countries and sells into over 160 countries,
servicing over 92,000 accounts representing over one million individual
customers. The strength of its geographic and customer base has
allowed the company to maintain stable margins and cash flows through
the cycle, which has favorably positioned SIAL despite the global
downturn of 2009. As the global economy continues to grow over
the next 12-18 months we expect SIAL to continue to produce robust
earnings and cash flows while maintaining its conservative financial philosophy.
The principal methodology used in rating Sigma-Aldrich Corporation
was Global Chemical Industry rating methodology published in December
2009. Other methodologies and factors that may have been considered
in the process of rating this issuer can also be found on Moody's website.
Sigma-Aldrich Corporation (SIAL), based in St. Louis,
MO, is a leading life science and high technology company whose
biochemical and organic chemical products and kits are used in scientific
and genomic research, biotechnology, pharmaceutical development,
the diagnosis of disease and as key components in pharmaceutical and other
high technology manufacturing. Revenues were roughly $2.3
billion for the twelve month period ending September 30, 2010.
Sigma-Aldrich is one of only four chemical companies in the Americas
that have a rating of A2, which is the highest rating among the
universe of rated chemical companies in the Americas.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service's information, confidential and proprietary Moody's
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
MOODY'S adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
MOODY'S considers to be reliable including, when appropriate,
independent third-party sources. However, MOODY'S
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's Assigns A2 to Sigma-Aldrich Corp.'s $250 million of proposed debt
250 Greenwich Street
New York, NY 10007
No Related Data.
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